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How Child Benefit will be Changing

Changes are due to take place in the way in which child benefit is distributed which will bring an end to all parents receiving the benefit. There has been both support and criticism for this idea, particularly the specifics of how it will be changed.

Child benefit’s origin goes back to the last time Britain had a coalition government just after the Second World War. Times were tough, with food rationing and a lack of housing, and due to the war the population numbers had inevitably taken a big hit. Child benefit was introduced as a way of encouraging people to have more children and boost the population. It was paid to parents for their second child and subsequent children at 5 shillings per week. Child benefit payments were later bought in for the first child too.

How does it Currently Work?

All parents are entitled to child benefit for any children they have. This is currently not dependant on income or other factors. Parents receive £20.30 per week for their eldest child and £13.40 for subsequent children. There is no limit as to how many children they can claim for. One parent receives the child benefit. For married or cohabiting parents it is up to them who receives the benefit. For those who do not live together it is usually dependant on who the children live with.

If two adults with children begin a relationship and move in together with both of their children they receive £20.30 for the eldest child and £13.40 for other children. If a couple divorce and one remarries and has more children the child benefit depends on whether or not the children live with them. If they do, they will receive £20.30 for the eldest child and £13.40 for other children. If their child(ren) from their previous marriage does not live with them they will receive £20.30 for the eldest child from their second marriage.

The Initial Proposal

The current government is looking to make changes so child benefit is not received by everyone, and in particular not received by those they do not consider to need it. The initial proposal was for families where the highest earner pays the higher rate of tax to not be entitled to child benefit. These plans have been controversial though. One concern has been that some would lose the benefit while others with a higher family income would not. With only the top earner being a deciding factor it meant that two parents earning £35,000 each and £70,000 in total would keep it while families where one parent doesn’t work but the other earns £45,000 would lose it. Another concern is the so-called ‘cliff-edge’, with a sudden cut-off point making the difference between being entitled to everything and nothing. It meant that earning £1 more effectively led to losing over £1,000 (more for those with more than one child).

The New Proposal

There is now a new, altered proposal, whereby parents will lose more child benefit depending on their income. There is still the issue of only the top earner being taken into consideration but the ‘cliff-edge’ effect will not exist. Families where the top earner earns more than £60,000 will lose all child benefit, while families where the top earner earns less than £50,000 will keep it all. In between these amounts child benefit will go down the more that is earned.

There is no perfect way of distributing any benefit and this is the case for child benefit. There will always be some who feel that they are not getting what they should. There is one basic fact, though, and that is that some rely on it to an extent while others clearly do not need it. Deciding on a cut-off point, however, is difficult and there will always be some who disagree. The country’s finances are tight and giving child benefit to the wealthiest is not a good use of public money. It is not, though, easy to define the boundaries between being wealthy and not. The way that it will now be distributed may not be as everyone would like but it does seem preferable to the initial proposal.

Andrew Marshall ©

Children’s Savings